Markets survived October and before you know it, Christmas will be here. What does that mean for us?
It’s almost time for the Santa Claus rally. The media thinks the Santa rally starts right at Christmas, just like they think 10% is a correction and 20% is a bear market. The truth of the matter is a Santa rally can kick in any time after Thanksgiving. Traditionally, we do get a rally in December unless the markets truly are in a bear. Since they are not, odds are high we will have a Santa rally this year. But will markets go straight up from Oct. 15 (the recent low) to the end of the year? I think not.
We are in the back end of some interesting time cycles, namely the 144/987-month window we’ve discussed since September. Now they are in the 161-week window off the 2011 bottom and by next week the start of the 610-week window off the March 2003 bottom. I didn’t think much about this particular window until one of my clients, Piotr in Poland, brought it to my attention and I realized that the actual low for European and Australian markets was in March 2003. So it ends up being fairly significant.
So, those of you who have snickered at the October correction, you are not out of the woods yet. There are still several opportunities for bears to come out of hibernation. However, the truth of the matter is we are dealing with a relentless bull which has returned the CBOE Volatility Index (VIX) (CFE:VI) to near record-low readings, which means complacency is off the chart.
Most charts look fairly good, and the only one that is a concern is the BTK (NYSE:BTK) which has come off the high. Why is that significant? It’s long been my view that biotech represents the heart of the stock market. If the SOX and banking are the brains, biotech is the area where people pin their get-rich-quick plans on the hope the stock they buy will be the one that comes up with a cure for cancer or some other dreadful disease. That’s how a stock can go from $5-$50 in short order. People take out their animalistic instincts in the biotech arena. Take away that rampant bullish speculation and the stock market can become a very dry place. For now it hasn’t gone away, but it’s not an upside leader right now. This could be a turning point kind of week for biotech.
The other surprise is the U.S. dollar (NYBOT:DXZ), which suddenly had some profit taking on Friday. What is interesting about the greenback is we actually have some calculations that could mean a high right now. Here’s the long term view of the greenback where we have a range of 15.45 and a leg up from May of 9.38 as of this writing. That means the last leg is .607 of the range and what we are looking for would be a last leg at .618, which is perfection. This is close enough.
What does that mean? It might mean nothing, but it also means they’ve reached the minimum requirements for a high. It could go a lot higher—or at least to our serious target of the 200-month moving average at 89.95. It could also pull back in back and fill mode. Whatever the case, at least technically we understand why this is happening. It does possibly play into our bigger time cycles because a dollar pullback could change the direction of the stock market, and it could even change the direction of oil and/or the precious metals. You never know when money starts rotating or chasing fewer or different opportunities.